Barron’s Weekend Summary:
* Cover Story: For T investors, the company’s fundamentals have long been less of a concern than its generous dividend, but as part of a transformative deal to spinoff WarnerMedia, which will combine with Discovery, the dividend will be cut, leaving investors wondering whether a smaller dividend is a reasonable concession, given the company has less debt and more cash to spend on its core mission around 5G and broadband.
* Tech Trader: Positive on CSCO: Tech companies have been warning investors that the global chip shortage is crimping their ability to grow, inflating costs, and depressing sales, but while that poses a challenge for Cisco, it shouldn’t overshadow the fact that the company is seeing greater demand and gaining traction on its push to transform more of its business to software.
* Trader: The fact that the S&P 500 has nearly half of its weighting toward tech, communication services, and consumer-discretionary stocks, and just 27 percent in energy, materials, banks, and industrials could put a damper on future gains if investors continue to dial back their exposure to growth sectors; Positive on KSS: The retailer stands out from peers because of the size of its recent earnings beat and post-release fall—but the selloff has created a buying opportunity, especially as demand for new clothes picks up.
* Features: 1) Positive on XOM, CVX, BP, Royal Dutch Shell: Many oil companies are supplementing their oil and gas businesses with investments in renewable energy, carbon capture, and other technologies that help to speed the transition away from oil, and while the road ahead will be bumpy, with plenty of risks, the transformation could also bring enormous opportunities for the companies involved, and for their investors; 2) Media mogul John Malone’s flexibility in dealmaking helped Discovery, in which he has a 26.5 percent voting interest, pull off a coup and buy the much larger WarnerMedia from T in a deal that will value the combined company at well over $100B, including debt, a merger that “creates scale and uses plenty of debt, which leverages returns to equity holders and reduces taxes”; 3) There are two Bitcoin markets—one is dominated by regulated exchanges and mainstream brokers and attracts investors who buy Bitcoin to hold, the other exists largely on unregulated exchanges where traders use derivatives, employ enormous leverage, and are often agnostic about the cryptocurrency’s direction; 4) In an interview with Barron’s, SoftBank chief Masayoshi Son, who has spent the past 18 months fundamentally revamping the company he created almost 40 years ago, confesses to some regrets, explains why he thinks the company is still undervalued, and shares why he is enthused about the prospects for investing in artificial-intelligence-based start-ups; 5) Cautious on UBER, LYFT: California’s Proposition 22 allows the ride-hailing companies to continue classifying drivers as contract workers rather than full-time employees, but it’s not clear whether that designation applies retroactively, and that poses a multibillion-dollar risk for investors; 6) Barron’s profiles seven managers who are creating the next generation of value investing—some are traditional, others less so, and all have impressive track records that demonstrate an ability to spot value; related story says “The teachings of Benjamin Graham still form the core of the curriculum taught to the next generation of value investors—but business schools are arming students with a more expansive toolbox and chipping away at the wall between value and growth.”
* ESG Investing: Three members of Barron’s ESG Roundtable share investment picks—Katherine Collins of Putnam likes COO, LEVI, TDUP, and AMAT; Karina Funk of Brown Advisory likes CHGG, SQ, and ETSY; Jon Hale of Morningstar likes TSBRX, PRBLX, CSXAX, PARMX, PXEAX.
* European Trader: Cautious on Airbus: The European aerospace giant “may have the ingredients for a long-term recovery—but only the brave would invest in a travel stock during a pandemic,” when uncertainty means it isn’t worth the gamble.
* Emerging Markets: The Chinese internet has been the most exciting story in emerging markets for many years, but it’s showing its age a bit, and the digital land grab is also more wide open in places such as Southeast Asia and in developed markets.
* Commodities: “As they take to the road this summer, many Americans will face the highest retail gasoline prices since 2014, and demand is still likely to climb, lifting prices to new highs for the year, a trend that was accelerated by the shutdown of Colonial Pipeline’s system this month.
* Streetwise: With the economy opening up, restaurants will gain back the market share they ceded to grocery stores, according to Nicole Miller Regan of Piper Sandler, and eventually, independent restaurants will have a revival.